LEGISLATION UPDATE: Key employment law changes from the Employment Rights Act 2025

After months of political wrangling, the Employment Rights Bill has finally gained Royal Assent on 18th December 2025. It has now become the Employment Rights Act 2025 (ERA 2025)- a landmark reform to reshape UK employment law over the coming years.

While many of the changes will not take effect immediately, employers should now be clear on the direction of travel and this means a shift in thinking from what might happen to how to prepare.

We have identified below some key points to be aware of now: 

Amendments employers are watching closely

Two late amendments made during the Bill’s final passage through parliament are particularly significant.

First, the qualifying period for ordinary unfair dismissal will reduce from two years to six months, rather than being removed entirely. This change is expected to take effect from January 2027. This is likely to have a significant impact on the volume of cases proceeding to through ACAS and on to tribunal. 

Second, and potentially more momentous, is the expected removal of the compensation cap for unfair dismissal, which is currently the lower of one year’s salary or £118,223 as the maximum an employee can claim. However, this is set to be abolished, subject to the Government completing and publishing an Impact Assessment. The median average award for unfair dismissal was £6,746 in 2023-24 (Employment Rights Bill - Hansard - UK Parliament) so this will substantially increase litigation risk and exposure for employers. 

Phased introduction

ERA 2025 will be implemented gradually under a government roadmap: Implementing the Employment Rights Bill - Our roadmap for delivering change

The only immediate change following Royal Assent has been the repeal of the Strikes (Minimum Service Levels) Act 2023.

Further reforms will follow in two months time, including simplified industrial action ballots and notices, stronger protection against dismissal during strikes, and the repeal of much of the Trade Union Act 2016.

From April 2026, employers will start to see more practical, day-to-day changes, such as:

• Day-one rights to paternity leave and unpaid parental leave
• Reformed Statutory Sick Pay (no waiting days or lower earnings limit)
• Expanded whistleblowing protection, including sexual harassment complaints
• Higher penalties for collective redundancy failures

Additional reforms are planned to take effect in October 2026, including stronger controls on fire-and-rehire practices, tougher rules on tips, expanded trade union rights, and a new duty to take “all reasonable steps” to prevent sexual harassment.

Beyond that, 2027 will see the changes to the unfair dismissal changes noted above, reforms covering flexible working, bereavement leave, protections for pregnant workers, restrictions on zero-hours arrangements, and regulation of umbrella companies.

What should employers be doing now?

For unionised employers, the priority is understanding the imminent changes to industrial action rules and reassessing risk and response planning.

For non-unionised workplaces, preparation should focus on:

• Reviewing contracts, variation clauses and probationary provisions
• Strengthening probationary processes ahead of the six-month unfair dismissal threshold
• Training managers on upcoming rights and obligations
• Planning policy updates for family leave, sickness absence and harassment
• Auditing payroll and benefits systems in light of SSP reform

In conclusion… 

The ERA 2025 is not a small, single point of change but a rolling programme of reform and keeping up to date is crucial. Employers that start planning early - rather than reacting to implementation dates - will be best placed to manage risk, cost and disruption to their businesses as the new framework takes shape.

Disclaimer: This summary is for general awareness and insight, not legal or professional advice and readers should seek professional advice for their situation.